With the global economy reeling on the edge of a recession and many countries with double digit inflation and double digit unemployment, no doubt the mood is gloomy for many families. High gas prices and therefore food prices are leaving many without the ability to save or get out of debt. This, business trends, has led to a lot of economic hardship on regular day to day workers and their families, business trends, . To combat this, many people looking for ways to supplement their income and one of the best ways to do this is to start an online business.
There is much hype about and we are constantly bombarded with one offer after another. Many of these offers have, have failed and then have them labeled as fraud. While we can not for the obvious risk of fraud on the Internet to ignore, many people fail not because of their online ventures will be highlighted as such, but because of their lack of implementation of certain disciplines that deal with online business. Let's see what wrong.Failure to "Hang in there" One of the great misconceptions of online business is to think that a fortune overnight,, business trends, this is because of the hype-up can make sales letters in circulation on the Internet promising that you can become an overnight millionaire with,, business trends, business trends, very little effort.
The truth is that there are many things to learn at times and many mountains to stabbing. Before you can truly successful online, any time is primarily invested in learning the business and the second to build a viable team that will work with you to your success. Most people stop the first time they encounter a large Huddle. Most people who become successful, business trends, online quitters.Trying not do everything yourself This is a silent killer of many online entrepreneurs have been.
They are their own masters, sales and marketing team, IT team, article writers, graphic designers, etc.. Then they hit the forums and respond to messages, post threads,, business trends,, business trends, post on blogs,, business trends, etc. orders maintained. This allows the new operator, so burned that his or her moral rapidly disappears. Overtime, business trends, is also easy to total exhaustion. The key is to put together a successful team and spend 70% of all work.
Failure keep trend Many new entrepreneurs into their online ventures, because they are not in keeping with the "latest and greatest." They lag behind in technology, business trends, and trends and are therefore unable to anticipate their markets. This creates a vacuum where their customers are quickly, business trends, swallowed up by, business trends, their competition, which is more agile and more attuned to the latest market trends.
No marketingIt is easy to start a new business, but you have a plan for which the customers will come from ? Do you have a strategy to attract a steady stream of new business? And, business trends, how will you ensure that your company is 'out there'? This includes marketing expert and is essential for
Looking for information on how to start an online business with less than $100? Check out the complete guide to being your own boss and kissing your current day job goodbye.
Tuesday, January 5, 2010
Forex Secrets: How To Fail at Forex Trading Guaranteed
Forex Secrets:
Before starting on your Forex trading trek, there are some essentials you need to look out for, otherwise you may just succeed at trading, and we certainly wouldn't want that to happen, now would we? These Forex secrets will help you spot the most devastating blunders Forex traders commit.
First of all, make sure you don't have a trading structure. Having a trading system may raise the odds of your success. If you have a routine, you will have an objective approach to get in and out the market. When traders build their trading systems they think neutrally since there is no stance to be taken at the moment. If there is no side to be taken, there is also no cash at risk, if there is no cash at risk, we do think neutrally and are open to every likelihood, thus we are able to find low risk trading opportunities. So if you want to fail, make sure you don't have a system and trade based on a random approach.
More Forex Secrets
If you have already formed your system, then don't adhere to it, be disorderly. If you keep to your system, there is a likelihood that you can profit from the Forex market based on the trading opportunities you have discovered. If you want to fail on your trading, be sure to be sloppy.
Don't get educated. Most successful traders are very well schooled in the market they trade (stocks, Forex, futures, etc.) If you get the appropriate instruction, you might achieve the expertise and experience you need to dominate the Forex market. Don't study the Forex market, don't enroll into Forex training programs and don't even consider historical charts.
Still More Forex Secrets
Don't use any money management method. The purpose of money management is to duck the chance of ruin, but at the same time it helps you enhance your profits, allowing them to grow geometrically. For instance, by using no money management system, there is a chance that in losing 10 trades in a row you could drain your trading account. On the other hand, by using simple money management systems you can dodge that. So make certain, if you want to fail, don't even think about money management.
Forget about psychological concerns. You have got to win every trade. Profitable traders know that they don't have to win every trade in order to profit from the market. This is one factor that is hard to fathom and really apply. Why? Because we are instructed, since childhood, that any score below 70% is a bad number. In the Forex trading environment, this is not true.
Don't even think about using a Risk-reward (RR) ratio greater than 1-1. If you apply a RR ratio of 1-2 (willing to render twice the amount risked in one trade) then you only need a technique that is right around 50% to make money. If you use a RR ratio of 1-3 (willing to produce three times the amount risked in one trade) then you will require a system that is accurate around 40% of the time to make money. So make sure to use a RR ratio below 1-1.
By utilizing every point outlined in these Forex secrets, you will almost guarantee your failure in your Forex trading journey. Do the reverse, and you will have the likelihood to pull off what every trader is searching for: Constant profitable results.
Before starting on your Forex trading trek, there are some essentials you need to look out for, otherwise you may just succeed at trading, and we certainly wouldn't want that to happen, now would we? These Forex secrets will help you spot the most devastating blunders Forex traders commit.
First of all, make sure you don't have a trading structure. Having a trading system may raise the odds of your success. If you have a routine, you will have an objective approach to get in and out the market. When traders build their trading systems they think neutrally since there is no stance to be taken at the moment. If there is no side to be taken, there is also no cash at risk, if there is no cash at risk, we do think neutrally and are open to every likelihood, thus we are able to find low risk trading opportunities. So if you want to fail, make sure you don't have a system and trade based on a random approach.
More Forex Secrets
If you have already formed your system, then don't adhere to it, be disorderly. If you keep to your system, there is a likelihood that you can profit from the Forex market based on the trading opportunities you have discovered. If you want to fail on your trading, be sure to be sloppy.
Don't get educated. Most successful traders are very well schooled in the market they trade (stocks, Forex, futures, etc.) If you get the appropriate instruction, you might achieve the expertise and experience you need to dominate the Forex market. Don't study the Forex market, don't enroll into Forex training programs and don't even consider historical charts.
Still More Forex Secrets
Don't use any money management method. The purpose of money management is to duck the chance of ruin, but at the same time it helps you enhance your profits, allowing them to grow geometrically. For instance, by using no money management system, there is a chance that in losing 10 trades in a row you could drain your trading account. On the other hand, by using simple money management systems you can dodge that. So make certain, if you want to fail, don't even think about money management.
Forget about psychological concerns. You have got to win every trade. Profitable traders know that they don't have to win every trade in order to profit from the market. This is one factor that is hard to fathom and really apply. Why? Because we are instructed, since childhood, that any score below 70% is a bad number. In the Forex trading environment, this is not true.
Don't even think about using a Risk-reward (RR) ratio greater than 1-1. If you apply a RR ratio of 1-2 (willing to render twice the amount risked in one trade) then you only need a technique that is right around 50% to make money. If you use a RR ratio of 1-3 (willing to produce three times the amount risked in one trade) then you will require a system that is accurate around 40% of the time to make money. So make sure to use a RR ratio below 1-1.
By utilizing every point outlined in these Forex secrets, you will almost guarantee your failure in your Forex trading journey. Do the reverse, and you will have the likelihood to pull off what every trader is searching for: Constant profitable results.
Labor Market Shows Signs of Progress
WASHINGTON -- The number of people filing new claims for unemployment benefits in the U.S. fell in the latest week to its lowest level in nearly 18 months, a sign the labor market may be turning a corner.
Initial claims for unemployment benefits fell by 22,000 to a seasonally adjusted 432,000 in the week ended Dec. 26, the lowest level since July 19, 2008. The four-week average of new claims, which aims to smooth volatility in the data, dropped by 5,500 to 460,250. That marked the 17th consecutive drop in the figure and the lowest level since Sept. 20, 2008.
The Labor Department said in its weekly report, released Thursday, that 4.98 million people had been collecting jobless benefits for more than a week in the week ended Dec. 19, a decline of 57,000.
The trend in jobless claims is sometimes hard to read during the holidays. "While an underlying downtrend is clearly in place, it is being exaggerated now by seasonal adjustment difficulties, which will continue over the very near term," economist Joshua Shapiro of MFR Inc., New York, said in a note to clients.
Recent data signal that the U.S. recovery from the worst recession in decades is taking hold. Robust retail sales and improving consumer confidence have raised expectations for strong economic growth in the fourth quarter. That has prompted some optimism that employers may soon resume hiring after two years of cutting payrolls.
The Labor Department is to release its snapshot of December's labor market on Friday. Economists at Wrightson ICAP predicted in a note Wednesday that the jobless rate, last reported at 10% for November, may have inched lower to 9.9% in December.
Initial claims for unemployment benefits fell by 22,000 to a seasonally adjusted 432,000 in the week ended Dec. 26, the lowest level since July 19, 2008. The four-week average of new claims, which aims to smooth volatility in the data, dropped by 5,500 to 460,250. That marked the 17th consecutive drop in the figure and the lowest level since Sept. 20, 2008.
The Labor Department said in its weekly report, released Thursday, that 4.98 million people had been collecting jobless benefits for more than a week in the week ended Dec. 19, a decline of 57,000.
The trend in jobless claims is sometimes hard to read during the holidays. "While an underlying downtrend is clearly in place, it is being exaggerated now by seasonal adjustment difficulties, which will continue over the very near term," economist Joshua Shapiro of MFR Inc., New York, said in a note to clients.
Recent data signal that the U.S. recovery from the worst recession in decades is taking hold. Robust retail sales and improving consumer confidence have raised expectations for strong economic growth in the fourth quarter. That has prompted some optimism that employers may soon resume hiring after two years of cutting payrolls.
The Labor Department is to release its snapshot of December's labor market on Friday. Economists at Wrightson ICAP predicted in a note Wednesday that the jobless rate, last reported at 10% for November, may have inched lower to 9.9% in December.
Pakistan forex market finds some stability
The Pakistani rupee PKR has stabilized, depreciating by around 6% in 2009 versus 22% in 2008, reports Forex news website of Dollars Magazine today.
According to report external account corrections, combined with record-high remittances from overseas Pakistanis has kept the Pakistan rupee broadly stable.
However, the report warns that Pakistan rupee can come under pressure during 2010 because of the rising trend in the commodity prices and exchange rate reforms including shifting crude oil payments to the interbank market.
On the brighter side there is a lot of potential in the already fruitful remittances area according to the Governor SBP Saleem Raza still over 50% of the country’s remittances come in through non formal channels.
Some of Pakistani experts do not completely agree with the governor’s statistics but consensus exist that there is a lot of room for growth in workers’ remittances.
PAKISTAN’S FOREX MARKET
Pakistan forex market sees a trade of over $ 8 billion every month the bulk of which is carried out in the interbank market. There are a total of 31 exchange companies authorized by the central bank five of which are subsidiaries of country’s major banking institutions.
Three exchanges are currently on the suspension namely Al Sahara Exchange, Khanani and Kalia and Zarco Exchange due to non compliance and other issues. There are another 30 companies in the B category of exchange companies whose operations are restricted only to the sale and purchase of foreign currencies
All of these companies come under the exchange policy department of the State Bank of Pakistan and are regulated by the Foreign exchange regulations act 1947 (FERA 1947). There is a foreign exchange manual published by the central bank which out lines all the dos and don’ts for the authorized dealers, exchange companies, investors and general public.
According to report external account corrections, combined with record-high remittances from overseas Pakistanis has kept the Pakistan rupee broadly stable.
However, the report warns that Pakistan rupee can come under pressure during 2010 because of the rising trend in the commodity prices and exchange rate reforms including shifting crude oil payments to the interbank market.
On the brighter side there is a lot of potential in the already fruitful remittances area according to the Governor SBP Saleem Raza still over 50% of the country’s remittances come in through non formal channels.
Some of Pakistani experts do not completely agree with the governor’s statistics but consensus exist that there is a lot of room for growth in workers’ remittances.
PAKISTAN’S FOREX MARKET
Pakistan forex market sees a trade of over $ 8 billion every month the bulk of which is carried out in the interbank market. There are a total of 31 exchange companies authorized by the central bank five of which are subsidiaries of country’s major banking institutions.
Three exchanges are currently on the suspension namely Al Sahara Exchange, Khanani and Kalia and Zarco Exchange due to non compliance and other issues. There are another 30 companies in the B category of exchange companies whose operations are restricted only to the sale and purchase of foreign currencies
All of these companies come under the exchange policy department of the State Bank of Pakistan and are regulated by the Foreign exchange regulations act 1947 (FERA 1947). There is a foreign exchange manual published by the central bank which out lines all the dos and don’ts for the authorized dealers, exchange companies, investors and general public.
Forex reserves fall by $144 mn to $283.4 bn
India's forex reserves declined by $144 million to $283.499 billion in the week ended December 25 as compared to $283.643 billion in the previous week, the Reserve Bank of India (RBI) said in its weekly report.
During the period, foreign currency assets dipped to $258.719 billion, down by $132 million, as compared to $258.851 billion in the previous week, the RBI said.
Foreign currency assets expressed in US dollar terms include the effect of appreciation or depreciation of non-US currencies such as Euro, Sterling, Yen held in reserves.
The gold reserves of the country stood unchanged at $18.182 billion in the week while the special drawing rights was down by $9 million to $5.172 billion from $5.181 billion in the previous week, the central bank said.
The country's reserve position in the international monetary fund declined by $3 million to $1.426 billion as compared to $1.429 billion in the last week, the RBI said.
During the period, foreign currency assets dipped to $258.719 billion, down by $132 million, as compared to $258.851 billion in the previous week, the RBI said.
Foreign currency assets expressed in US dollar terms include the effect of appreciation or depreciation of non-US currencies such as Euro, Sterling, Yen held in reserves.
The gold reserves of the country stood unchanged at $18.182 billion in the week while the special drawing rights was down by $9 million to $5.172 billion from $5.181 billion in the previous week, the central bank said.
The country's reserve position in the international monetary fund declined by $3 million to $1.426 billion as compared to $1.429 billion in the last week, the RBI said.
Five reasons to be bullish or bearish on markets
It's important for investors to listen to both sides before plunking down their money in stocks or bonds.
There's a lot of uncertainty among investors following the once-in-a-generation rally in the S&P 500 (SPX-I1,132.9917.891.60%) and the S&P/TSX (TSX-I11,866.90120.791.03%) from their panic lows set at the height of the financial crisis. What comes next?
The bears point to the extensive amount of damage that has been done to the balance sheet of the U.S. government and the U.S. dollar, not to mention the loss of wealth by the average consumer as a result of the housing debacle. There's a price to be paid, they say. And that could be rampant inflation and higher taxes.
Bulls, on the other hand, will take confidence that a recovery is under way in North America and that there is a seemingly insatiable demand around the world for resources and products.
As for the U.S., there is a growing pent-up demand for housing, the banks are rebuilding their balance sheets and an increase in savings by U.S. citizens is not a bad trend at all.
Here are five key bear and bull arguments. It's important for investors, whatever side they are on, to understand and weigh the merits of the arguments before plunking down their money in stocks or bonds.
Five reasons to be bullish:
1. Corporate profits of the companies on the S&P/500 over the next 12 months (fourth quarter of 2009 to the third quarter of 2010) are forecast by analysts to increase 27 per cent, according to Thomson Reuters, and given the ruthless cost-cutting, profits could even be higher. That suggests stocks are trading at a price-to earnings ratio of 14:1. The long-term average multiple is about 16.3, according to RBC Dominion Securities Inc.
Corporate balance sheets are in good shape. Inventory levels also remain low. “A more forceful phase of restocking seems likely to unfold over the next few quarters given that production growth had fallen so far behind consumption growth during the prior downturn,” said Myles Zyblock, chief institutional strategist and director of capital markets research for RBC Dominion Securities.
2. “Don't fight the Fed.” That's a commonly enough heard investment maxim. This time it is not just the U.S. Federal Reserve Board that is standing behind low interest rates. So are the G20 nations. That low interest rate environment around the world provides a lot of stimulus by enabling the battered banks to rebuild their balance sheets and it will aid the recovery of the beleaguered U.S. housing industry by keeping mortgage rates low.
So where do investors go? Equities.
“Bond returns are expected to be between zero per cent (government) to low single digits (corporate bonds) in 2010 versus 10-per-cent returns for equities,” said Vincent Delisle, a portfolio strategist with Scotia Capital Inc.
3. Commodity markets account for about 46 per cent of the S&P/TSX and that's a good thing. The futures market for many commodities such as base metals are suggesting supplies will be tight and prices up, said Robert Tebbutt, vice-president of corporate risk management with Peregrine Financial Group Canada Ltd.
Although some inventories are high, the low interest rates make the cost of holding or carrying commodities extremely cheap for large financial institutions, he said. “They are saying ‘We like the market, we like it now and are willing to buy now because we think prices will be higher' in the future,” he said. “You must not mix it up with the situation in which speculative money pours into the markets.”
Most commodities are doing well, including energy and base metals, while forest products also show signs of recovery.
“Global hedge funds and investors still believe there is good value in commodities as an ‘asset class' – particularly vis-à-vis low-yielding U.S. Treasury securities,” said Patricia Mohr, vice-president of industry and commodity research at Bank of Nova Scotia. “Investment funds expect restocking of basic materials across the G7, once these economies fully recover, after massive liquidation late last year.”
4. Take your hats off to the indefatigable U.S. consumer.
“Despite job losses, struggling consumer confidence and the end of the cash for clunkers, U.S. consumer spending is likely to expand at about a 2-per-cent annualized rate in the fourth quarter,” said Yanick Desnoyers, assistant chief economist with National Bank Financial Inc. “In other words, rising unemployment has not cut into consumer spending.” National Bank estimates the U.S. economy will grow by 3.4 per cent in 2010.
5. The fiscal stimulus or infrastructure spending by the U.S. and Canadian governments is still under way, with much of the money still to be spent. And already there is speculation that the U.S. government will figure out a way of making new injections of money, perhaps using cash being returned from the banks from the Troubled Asset Relief Program.
Five reasons to growl like a bear:
1. The fragile economy is jacked up on the steroids – low interest rates and global fiscal stimulus policies. Take those away, as inevitably will happen as the world's central banks raise rates from emergency low levels, and growth will fizzle. The economy needs the private sector to pick up the slack, which depends on the willingness of companies and consumers to take on additional debt.
Cyclical recoveries can get under way while credit creation is depressed or even entirely absent, but it is difficult for an upswing to be sustained or to demonstrate any degree of vibrancy without the free flow of money and credit, said Russell Jones, managing director and global head of foreign exchange and fixed income strategy for RBC Dominion Securities. Large financial crises triggered by “housing busts” tend to leave an enduring legacy of dysfunction, he said.
So investors betting on a quick return to normalcy may be overly optimistic.
2. A weak U.S. dollar has underpinned much of the strength in commodities. It has also helped equities by improving the competitive position of U.S. exporters and bolstering the profits of the U.S. multinationals. But a stronger greenback would likely be an impediment to both groups.
A weaker U.S. dollar has been a one-way trade for months. But rising interest rates or debt problems around the world could renew the flight to safety of the U.S. dollar. Or maybe the U.S.-dollar selling is just simply overdone.
“We expect the U.S. currency to strengthen during 2010,” said John Higgins, senior markets economist with London-based Capital Economics Ltd. In part, that is based on investor enthusiasm lessening for riskier assets and economies.
The dollar should also strengthen with the realization that the U.S. will not face inflationary pressures as some fear because of excess capacity preventing rising prices. In addition, while money supply has increased, the velocity of money is decreasing, he said. “We are deeply skeptical of that [inflation worries].”
3. Share profit expectations are way too high given the sluggish economy. “We would be surprised if S&P 500 operating earnings per share grew by more than 10 per cent in 2010,” Mr. Higgins said. That would be considerably weaker than the over 30-per-cent profit gain being looked for by many analysts, which is typically the focus of investors. “Expectations for next year are a bit rosy in my view.”
During the first half of 2010, the U.S. economy should do quite well given the fiscal stimulus and inventory rebuilding, Mr. Higgins said. “But hidden behind that is the continued weakness of consumer spending, unemployment and credit tightening constraining household spending.”
While there are reasons to expect a second-half slowdown, Mr. Higgins doubts equity markets will come under severe pressure, although he expects there will be profit-taking. “The market is slightly overvalued, but we are not in a bubble.”
4. U.S. households have seen their home prices drop and the value of their investments plunge, so don't count on the consumer spending to generate much growth. Those with jobs are expected to keep savings rates up to a 3 per cent to 4 per cent range from close to zero before the credit crisis. And the banks aren't in any hurry to start lending because they have to build up their reserves to withstand future bad debts from mortgages and credit cards.
5. There is always the unknown that can shock. Perhaps the hot Chinese economy, which has been a key driver of the global recovery, needs to cool down. Investors are banking on a smooth recovery. Equity option volatility is low and the spreads between corporate debt and risk-free government bonds have also narrowed back to normal levels. Of course that complacency among investors could quickly erode.
There's a lot of uncertainty among investors following the once-in-a-generation rally in the S&P 500 (SPX-I1,132.9917.891.60%) and the S&P/TSX (TSX-I11,866.90120.791.03%) from their panic lows set at the height of the financial crisis. What comes next?
The bears point to the extensive amount of damage that has been done to the balance sheet of the U.S. government and the U.S. dollar, not to mention the loss of wealth by the average consumer as a result of the housing debacle. There's a price to be paid, they say. And that could be rampant inflation and higher taxes.
Bulls, on the other hand, will take confidence that a recovery is under way in North America and that there is a seemingly insatiable demand around the world for resources and products.
As for the U.S., there is a growing pent-up demand for housing, the banks are rebuilding their balance sheets and an increase in savings by U.S. citizens is not a bad trend at all.
Here are five key bear and bull arguments. It's important for investors, whatever side they are on, to understand and weigh the merits of the arguments before plunking down their money in stocks or bonds.
Five reasons to be bullish:
1. Corporate profits of the companies on the S&P/500 over the next 12 months (fourth quarter of 2009 to the third quarter of 2010) are forecast by analysts to increase 27 per cent, according to Thomson Reuters, and given the ruthless cost-cutting, profits could even be higher. That suggests stocks are trading at a price-to earnings ratio of 14:1. The long-term average multiple is about 16.3, according to RBC Dominion Securities Inc.
Corporate balance sheets are in good shape. Inventory levels also remain low. “A more forceful phase of restocking seems likely to unfold over the next few quarters given that production growth had fallen so far behind consumption growth during the prior downturn,” said Myles Zyblock, chief institutional strategist and director of capital markets research for RBC Dominion Securities.
2. “Don't fight the Fed.” That's a commonly enough heard investment maxim. This time it is not just the U.S. Federal Reserve Board that is standing behind low interest rates. So are the G20 nations. That low interest rate environment around the world provides a lot of stimulus by enabling the battered banks to rebuild their balance sheets and it will aid the recovery of the beleaguered U.S. housing industry by keeping mortgage rates low.
So where do investors go? Equities.
“Bond returns are expected to be between zero per cent (government) to low single digits (corporate bonds) in 2010 versus 10-per-cent returns for equities,” said Vincent Delisle, a portfolio strategist with Scotia Capital Inc.
3. Commodity markets account for about 46 per cent of the S&P/TSX and that's a good thing. The futures market for many commodities such as base metals are suggesting supplies will be tight and prices up, said Robert Tebbutt, vice-president of corporate risk management with Peregrine Financial Group Canada Ltd.
Although some inventories are high, the low interest rates make the cost of holding or carrying commodities extremely cheap for large financial institutions, he said. “They are saying ‘We like the market, we like it now and are willing to buy now because we think prices will be higher' in the future,” he said. “You must not mix it up with the situation in which speculative money pours into the markets.”
Most commodities are doing well, including energy and base metals, while forest products also show signs of recovery.
“Global hedge funds and investors still believe there is good value in commodities as an ‘asset class' – particularly vis-à-vis low-yielding U.S. Treasury securities,” said Patricia Mohr, vice-president of industry and commodity research at Bank of Nova Scotia. “Investment funds expect restocking of basic materials across the G7, once these economies fully recover, after massive liquidation late last year.”
4. Take your hats off to the indefatigable U.S. consumer.
“Despite job losses, struggling consumer confidence and the end of the cash for clunkers, U.S. consumer spending is likely to expand at about a 2-per-cent annualized rate in the fourth quarter,” said Yanick Desnoyers, assistant chief economist with National Bank Financial Inc. “In other words, rising unemployment has not cut into consumer spending.” National Bank estimates the U.S. economy will grow by 3.4 per cent in 2010.
5. The fiscal stimulus or infrastructure spending by the U.S. and Canadian governments is still under way, with much of the money still to be spent. And already there is speculation that the U.S. government will figure out a way of making new injections of money, perhaps using cash being returned from the banks from the Troubled Asset Relief Program.
Five reasons to growl like a bear:
1. The fragile economy is jacked up on the steroids – low interest rates and global fiscal stimulus policies. Take those away, as inevitably will happen as the world's central banks raise rates from emergency low levels, and growth will fizzle. The economy needs the private sector to pick up the slack, which depends on the willingness of companies and consumers to take on additional debt.
Cyclical recoveries can get under way while credit creation is depressed or even entirely absent, but it is difficult for an upswing to be sustained or to demonstrate any degree of vibrancy without the free flow of money and credit, said Russell Jones, managing director and global head of foreign exchange and fixed income strategy for RBC Dominion Securities. Large financial crises triggered by “housing busts” tend to leave an enduring legacy of dysfunction, he said.
So investors betting on a quick return to normalcy may be overly optimistic.
2. A weak U.S. dollar has underpinned much of the strength in commodities. It has also helped equities by improving the competitive position of U.S. exporters and bolstering the profits of the U.S. multinationals. But a stronger greenback would likely be an impediment to both groups.
A weaker U.S. dollar has been a one-way trade for months. But rising interest rates or debt problems around the world could renew the flight to safety of the U.S. dollar. Or maybe the U.S.-dollar selling is just simply overdone.
“We expect the U.S. currency to strengthen during 2010,” said John Higgins, senior markets economist with London-based Capital Economics Ltd. In part, that is based on investor enthusiasm lessening for riskier assets and economies.
The dollar should also strengthen with the realization that the U.S. will not face inflationary pressures as some fear because of excess capacity preventing rising prices. In addition, while money supply has increased, the velocity of money is decreasing, he said. “We are deeply skeptical of that [inflation worries].”
3. Share profit expectations are way too high given the sluggish economy. “We would be surprised if S&P 500 operating earnings per share grew by more than 10 per cent in 2010,” Mr. Higgins said. That would be considerably weaker than the over 30-per-cent profit gain being looked for by many analysts, which is typically the focus of investors. “Expectations for next year are a bit rosy in my view.”
During the first half of 2010, the U.S. economy should do quite well given the fiscal stimulus and inventory rebuilding, Mr. Higgins said. “But hidden behind that is the continued weakness of consumer spending, unemployment and credit tightening constraining household spending.”
While there are reasons to expect a second-half slowdown, Mr. Higgins doubts equity markets will come under severe pressure, although he expects there will be profit-taking. “The market is slightly overvalued, but we are not in a bubble.”
4. U.S. households have seen their home prices drop and the value of their investments plunge, so don't count on the consumer spending to generate much growth. Those with jobs are expected to keep savings rates up to a 3 per cent to 4 per cent range from close to zero before the credit crisis. And the banks aren't in any hurry to start lending because they have to build up their reserves to withstand future bad debts from mortgages and credit cards.
5. There is always the unknown that can shock. Perhaps the hot Chinese economy, which has been a key driver of the global recovery, needs to cool down. Investors are banking on a smooth recovery. Equity option volatility is low and the spreads between corporate debt and risk-free government bonds have also narrowed back to normal levels. Of course that complacency among investors could quickly erode.
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